e-Forex-May-23

Stacking up the USPs of FX ECNs
SPECIAL REPORT
“ECNs are able to provide an advanced level of sophistication
in speed, technology and functionality. The flexibility in
trading solutions and diversification is the appeal,”
Clinton Norton
potential to reduce costs compared to
traditional futures trading,” says Norton.
TECHNOLOGY AND
FLEXIBILITY
To maintain a competitive edge and to
attract new clients, ECNs must evolve in
technology and flexibility, says Norton.
“Speed and technology are at the core
of Euronext FX. Our development team
allocates time and resources to ensure
the ECN operates at peak performance.
We are proud of our platform latency
with order-to-ack and quote-to-feed
latencies sub 25 milliseconds. This
is particularly important in times of
volatility where price discovery tends to
occur on our ECN first,” says Norton.
With so many execution venues
available, ECNs need to be nimble
and flexible in what they offer new
and existing clients, says Norton. This
means a greater focus on customisation
– something that Norton believes
Euronext has demonstrated with two
of its most recently developed offerings
– 1. P&L Control which provides realtime
P&L monitoring and subsequent
interaction management for liquidity
providers and 2. Full Amount Lock-In
which routes back to back trades to the
same liquidity provider for a set period
of time to allow time for hedging time
and avoid impact.
A global footprint also attracts new
clients, says Norton. “Euronext FX,
together with Euronext Markets
Singapore, operates matching engines
in New York, London, Tokyo and
Singapore, each managed by local
experts. Pricing in each matching
engine is different and for niche
currencies, pricing is ameliorated by
local makers with natural interest.”
Liquidity management has also become
a source of benefit for ECNs in terms
of avoiding liquidity abuse and creating
custom liquidity pools. “Optimal fill
rates and positive liquidity provider
yield vary from client to client,” says
Norton. “Even for a single client,
these thresholds can be different for
specific sessions, depending on their
strategic P&L outlook.”
Euronext FX’s liquidity management
team works with takers and
makers to curate custom pools
where counterparty performance
matches client expectations, says
Norton. “Our liquidity managers
meet with clients regularly to
manage trading interactions and new
opportunities. To support clients in
their own pool curation, we deliver
granular data per tag per currency pair.”
Euronext FX also has in place several
safeguards against liquidity abuse, says
Norton.
“These include speedbumps for
consecutive rejections, and automated
protections around fill rates where
we halt trading from LPs when they
breach the required fill rate of the
end client. We recently rolled out Full
Amount Lock-In to avoid rapid fire
and sweeping, and P&L control for
makers to automatically limit intraday
losses per client,” he adds.
In contrast to the data from US and UK
FX Committees showing a decline in
execution volume for ECNs, Euronext
FX has seen its activity increase. In
2022, its average daily volume (ADV)
grew by 17% year-on-year while ECN
ADV is up by 4% from the period
between Q4 2022 and Q1 2023.
Norton attributes this to a combination
of new clients and special attention to
growth areas such as firm, full amount,
and SkewSafe trading.
EXPANDING PRODUCT RANGE
However, more can be done to make
the ECN model more attractive by
developing new technology, enhancing
liquidity, expanding the product range
and aligning with the FX Global Code,
says Norton.
“At the start of 2023, our new FX Global
Code policy came into effect whereby all
taker sessions were defaulted to Codeonly
liquidity unless a taker specifically
opts out. We allowed the taker to make
their own liquidity choice based on
enhanced data we provided. As a result,
by the end of Q1, +90% of platform
volumes were generated by Codesignatory
LPs compared to 78% in Q3
2022,” says Norton.
“While Euronext FX has no immediate
plans to go beyond FX, we have
expanded our product offering with
NDFs, first launched in Singapore, and
now available in London,” says Norton.
“Through Euronext Markets Singapore,
clients can interact with local and
global liquidity in Asian NDF pairs. We
have also recently expanded into the
quantitative data space with the launch
of our FX Market Flow, which offers
subscribers daily metrics that reflect
market trends. metrics are designed to
be used by quant funds to assist in the
implementation of overnight trading
strategies.”
54 MAY 2023 e-FOREX